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Gifted house deposits

It’s a tough time for first-time house buyers. With rising property prices, saving up a decent deposit can often feel like an uphill struggle. But what if your parents give you the money as a gift?

Surprisingly, it’s not just a simple case of handing over the cash. Here’s what you should know about gifted house deposits.

It’s a tough time for first-time house buyers. With rising property prices, saving up a decent deposit can often feel like an uphill struggle. But what if your parents give you the money as a gift?

Surprisingly, it’s not just a simple case of handing over the cash. Here’s what you should know about gifted house deposits.

Tobi Owens
From the Mortgages team
4
minute read
Do you know someone who could benefit from this article?
Posted 12 OCTOBER 2020

What is a gifted house deposit?

A gifted deposit is exactly that. It’s a genuine gift of money that’s been given to you unconditionally, with no strings attached.

A gifted deposit is not a loan that you’ll be expected to pay back eventually.

This needs to be made very clear, right from the start. If you’re given the money with a private agreement – no matter how informal – that you’ll pay it back to the person who gave it to you, it will be considered a loan.

And that matters, because a loaned deposit will be treated differently by lenders, which could affect your chances of getting a mortgage.

Not only will you need to tell your mortgage lender and conveyancing solicitor that the deposit is a genuine gift, you’ll also need to show them proof.

Can anyone gift me the deposit?

This is another thing you need to think about. Some lenders are picky about who can gift you the money. In most cases, lenders are happy if it’s close family members such as your mum or dad, siblings or grandparents.

But if your favourite aunt or a generous friend wants to chip in, your lender might not accept the money as a deposit.

What proof do I need to show that the house deposit is a gift?

Luckily, it’s pretty simple to get proof that the gift is genuine. In most cases, a signed letter or document is enough to keep lenders happy.

The document needs to specify that the money is a genuine gift and doesn’t need to be paid back. It also needs to state that the person who is gifting you the money has no legal rights to the property.

It needs to be written, signed and dated by the person who’s gifting you the money, and should make clear the following:

  • The money is a genuine gift
  • The amount of money being given as a gift
  • The gift is unconditional and is not to be repaid
  • The person giving you the money has no legal rights to the property
  • The address of the property you’re planning to buy
  • The gift comes from a legitimate source, for example, savings
  • The person giving you the money is financially stable and can afford to gift you the deposit

You’ll also need a witness to sign and date the document.

To comply with anti-money laundering rules, the person gifting you the money will also need to provide proof of documents. These may include:

  • ID – for example a passport or driving licence
  • Proof of address – such as utility bills or bank statements
  • A bank statement showing where the funds are coming from

The conveyancing solicitor will also want to see these documents.

What is a ‘deed of trust’?

A deed of trust is a document that can be drawn up by your conveyancing solicitor. It helps protect the money that’s been gifted to you.

As is often the case these days, you might be buying your first home with a partner or even a friend. If the relationship goes sour and you split up, a deed of trust can protect your interests in relation to the gift deposit.

Let’s say your parents gift you the money to put towards your mortgage. A deed of trust can specify that the money has been gifted to you, not to both you and your partner. If things go pear-shaped, at least you’ll know that the money you’ve put down is yours by rights.

Will I have to pay tax on the gifted deposit?

Nope. A gifted deposit is totally tax-free. But you might be charged inheritance tax further down the road if the person who gifted you the money dies within seven years of giving it to you, and their total estate (including the gift) is worth more than £325,000.

What are the alternatives to a gifted house deposit?

If your parents don’t have the funds to gift you the deposit, there are alternative ways to get the money together:

  • They could be named as guarantors on a 100% mortgage. You won’t need a deposit, but your parents will have to guarantee the mortgage repayments as security if you can’t pay.
  • An offset mortgage that’s linked to your parents’ savings account will mean you pay less interest on your mortgage repayments.
  • You might be eligible for the Government’s Help to Buy scheme which helps first-time buyers get a foothold on the property ladder.

If you’re lucky enough to have generous parents (with a healthy bank balance), a gifted deposit is certainly one of the simplest ways to get the funds together. A decent chunk of money will also give you access to a wider choice of cheaper mortgages. Once you’re ready to take the leap, check out which mortgage deals are available for you.

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